Method for handling claims arising under representation and warranty insurance for mortgage loans

ABSTRACT

An insurance program for entities in the mortgage industry that provides coverage for financial loss as a result of material inaccuracies in the financial information provided by or on behalf of the borrower. The insurance program preferably includes the initial insurance application and establishment of an insurance agreement, periodic issuing of individual insurance coverages for particular loans handled by the lender, training and consulting on improved controls for lenders, maintaining an ineligible database of entities and a database of loan information, and handling of claims. Handling of claims includes attempting to minimize the potential loss suffered as a result of a misrepresentation of information in a loan file when coverage under the insurance policy exists.

This patent application claims the benefit of U.S. Provisional PatentApplication No. 60/600,832, filed Aug. 12, 2004, and U.S. ProvisionalPatent Application No. 60/552,712, filed Mar. 15, 2004. Both of theseprovisional patent applications are hereby incorporated by reference.

I. FIELD OF THE INVENTION

This invention relates to the insurance industry and more particularlyto insuring against losses as a result of material inaccuracies in thefinancial information provided by or on behalf of the borrower. Thistype of insurance is known as lender's representation and warrantyinsurance.

II. BACKGROUND OF THE INVENTION

Industry studies estimate that between 10 and 15 percent of all mortgageapplications included some fraud or misrepresentations which translateinto billions of dollars per year in costs to investors (entities thatpurchase loans for investment purposes), lenders (entities thatparticipate in the loan process and/or sell acquired loans toinvestors), and borrowers. The level of misrepresentation and fraudincludes anything from the borrower's income or real source from whichthe buyer's down payment came from to fake documentation for creditscores, tax returns, identities, as well as inflated appraisals. Overthe last few years, the mortgage industry as a result is suffering froman increase in risk of financial loss including: repurchase requestsbeing made by investors against lenders, a warehouse lender requiring aloan to be removed from the warehouse line even though the loan may notbe saleable, and diminution in value of a loan being held by a lender ina portfolio. Repurchase requests, inability to sell the mortgage, ordiminution in value of a portfolio loan can be based on a variety ofreasons including credit (or lack thereof) and misrepresentation. Bothof these reasons can occur even though a lender follows and uses all ofthe controls it has in place, because these controls may still besubverted by individuals looking to commit fraud.

Many times when a loan is fraudulently obtained by an individual, actingalone or in a conspiracy with other entities, the individual willdisappear shortly after the loan closes and before any payments are dueon the mortgage. Although, a few payments may be made to gain someadditional time to commit further fraud and/or more completelydisappear.

Another source of fraud is where an unwitting buyer is persuaded topurchase a significantly overvalued property based on a fraudulentappraisal. The seller then pockets the profit presumably after paymentsto the appraiser and/or others who participated in the scheme. The newowner most times finds it impossible to refinance or sell the propertyto pay off the loan, because the property is worth less than the loanvalue.

These problems in part result from the lack of industry standards forpreventing fraud and for measuring options for combating fraud. As aresult, the mortgage industry is suffering from lenders receivingrepurchase requests from investors, lenders being unable to sell loansto investors, and/or lenders experiencing diminution in value of aportfolio loan. As the costs increase for lenders, the costs are thenpassed on to future mortgage applicants and borrowers.

Given the above problems in the mortgage industry, a need exists foradditional tools to protect lenders against financial losses based on amisrepresentation.

III. SUMMARY OF THE INVENTION

At least one embodiment of the invention includes a method for offeringinsurance to lenders for loans handled by them, the method includingreceiving a request for insurance from a lender, requesting informationfrom the lender as part of an insurance application, sending receivedinformation on the lender for obtaining a risk classification based atleast on a likelihood of a misrepresentation occurring during the loanapplication process, learning the risk classification assigned for thelender, analyzing received information together with the riskclassification, and when a positive analysis results, setting a premiumrate to charge the lender based at least on the analysis and the riskclassification, and offering an insurance agreement that includes theterms to be agreed to by the lender and conditions, the conditionsinclude a guarantee from the lender to use existing controls or improvedcontrols, and the premium rate to be charged for loans that are coveredby the insurance agreement.

At least one embodiment of the invention includes a method for offeringinsurance to lenders for loans handled by them, the method includingreceiving a request for insurance from a lender, requesting informationfrom the lender as part of an insurance application, determining a riskclassification based at least on received information on the lender anda likelihood of a misrepresentation occurring during the loanapplication process, analyzing received information together with therisk classification, and when a positive analysis results, setting apremium rate to charge the lender based at least on the analysis and therisk classification, and offering an insurance agreement that includesthe terms to be agreed to by the lender and conditions, the conditionsinclude a guarantee from the lender to use existing controls or improvedcontrols, and the premium rate to be charged for loans that are coveredby the insurance agreement.

At least one embodiment of the invention includes a method for offeringinsurance to lenders for loans handled by them, the method includingreceiving a request for insurance from a lender, requesting informationfrom the lender as part of an insurance application, sending receivedinformation on the lender for obtaining a rating, learning the ratingassigned for the lender, analyzing received information together withthe rating, and when a positive analysis results, setting a premium rateto charge the lender based at least on the analysis and the rating, andoffering an insurance agreement that includes the terms to be agreed toby the lender and conditions, the conditions include a guarantee fromthe lender to use existing controls or improved controls, and thepremium rate to be charged for loans that are covered by the insuranceagreement.

At least one embodiment of the invention includes a method for offeringinsurance to lenders for loans handled by them, the method includingreceiving a request for insurance from a lender, requesting informationfrom the lender as part of an insurance application, determining arating based at least on information on the lender and a likelihood of amisrepresentation occurring during the loan application process,analyzing received information together with the rating, and when apositive analysis results, setting a premium rate to charge the lenderbased at least on the analysis and the rating, and offering an insuranceagreement that includes the terms to be agreed to by the lender andconditions, the conditions include a guarantee from the lender to useexisting controls or improved controls, and the premium rate to becharged for loans that are covered by the insurance agreement.

At least one embodiment of the invention includes a method for providinga representation and warranty insurance to aggregating entities for amortgage pool, the method including receiving an insurance applicationfrom the aggregating entity for the mortgage pool, conducting a riskassessment of the mortgage pool based at least on information containedin the insurance application, determining a premium to charge for themortgage pool based at least on the risk assessment, and issuing aninsurance agreement including the premium for insurance coverage of themortgage pool to the aggregating entity.

At least one embodiment of the invention includes a method fordetermining an insurance premium for a group of loans for a particulartime period handled by a lender or investor covered by a representationand warranty insurance policy, the method including receiving productioninformation for the group of loans for the particular time period fromthe lender, analyzing production information for a profile, setting apremium for each covered loan in the group of loans based on pricingfrom the insurance policy, notifying the lender of the premiums for thegroup of loans, and collecting the premiums from the lender.

At least one embodiment of the invention includes a method fordetermining an insurance premium for a group of loans for a particulartime period handled by a lender covered by a representation and warrantyinsurance policy, the method including receiving production informationfor the group of loans for the particular time period from the lender,receiving a designation of which loans within the group of loans thelender wants covered under the insurance policy, analyzing productioninformation for a profile, setting a premium for each covered loan inthe group of loans based on pricing from the insurance policy, notifyingthe lender of the premiums for the group of loans, and collecting thepremiums from the lender.

At least one embodiment of the invention includes a method fordetermining an insurance premium for a group of loans for a particulartime period handled by a lender covered by a representation and warrantyinsurance policy, the method including making available to lenders atleast one database containing at least one exclusionary list and loandata, receiving production information for the group of loans for theparticular time period from the lender, receiving identification ofwhich loan segments of the group of loans for which the lender isrequesting coverage under the insurance policy, scrubbing the receivedproduction information against at least one database for matches, when amatch occurs for a particular loan, performing the following: notifyingthe lender that a match occurred for the particular loan, and excludingfrom coverage at least the reason for the match, setting a premium foreach covered loan in the group of loans based on pricing from theinsurance policy, notifying the lender of the premiums for the group ofloans, and collecting the premiums from the lender.

At least one embodiment of the invention includes a method for a lenderto utilize an insurance program providing representation and warrantyinsurance from an insurer, the method including receiving a mortgageapplication, reviewing and underwriting the mortgage application,obtaining an appraisal of the property to be subject to the mortgage,scrubbing information from the mortgage application against the contentsof at least one database provided by the insurer, at least one databaseincludes an ineligible list, and approving or denying the mortgageapplication, when the mortgage application is approved, performing thefollowing: transmitting closing instructions to a settlement agent,submitting production information including the closed mortgage to theinsurer for insurance coverage, and selling the mortgage to an investor.

At least one embodiment of the invention includes a method forprocessing a coverage request to an insurance entity made by an insuredunder a representation and warranty insurance policy, the methodincluding receiving the coverage request resulting from a discovery of afinancial misrepresentation of information in a loan file putting theinsured at a financial risk of a loss, beginning a mitigation processfor the coverage request, reviewing the coverage request to determine ifcontrols as required in the insurance policy were utilized by theinsured in processing the loan, determining whether the insurance policycovers the coverage request, and when coverage exists for the coveragerequest based on the review, performing the following: continuing themitigation process of the coverage request, and paying a proof of lossrelating to the coverage request up to coverage limits of the insurancepolicy if presented.

At least one embodiment of the invention includes a method forprocessing a coverage request to an insurance entity made by an insuredunder a representation and warranty insurance policy, the methodincluding receiving the coverage request resulting from a discovery of afinancial misrepresentation of information in a loan file putting theinsured at a financial risk of a loss; beginning a mitigation processfor the coverage request, the mitigation process includes investigatingwhether an entity that originated the loan is capable of assisting inrefinancing the loan, investigating whether any entity that participatedin originating, obtaining or closing the loan is culpable and capable ofcovering any financial loss associated with the coverage request,investigating whether any entity that participated in closing the loanfailed to follow instructions, investigating foreclosure of the propertysubject to the loan, and investigating whether the financial loss can beminimized by selling the loan to another entity at a discount below theloan value; reviewing the coverage request to determine if controls asrequired in the insurance policy were utilized by the insured inprocessing the loan; determining whether the insurance policy covers thecoverage request including when the insured participated in themisrepresentation, finding no coverage, when a source of themisrepresentation is excluded from coverage, finding no coverage, andwhen controls of insured were not utilized properly by the insured,finding no coverage; when coverage exists for the coverage request basedon the review, performing the following: continuing the mitigationprocess of the coverage request, and paying a proof of loss relating tothe coverage request up to coverage limits of the insurance policy ifpresented, and when the proof of loss is presented, begin subrogationusing the mitigation process; when the coverage request is denied,allowing the insured to continue mitigation at the insured's expense;and when an entity is culpable, adding the entity to an ineligible list.

At least one embodiment of the invention includes a method for providinga representation and warranty insurance program to lenders in a mortgagefield, the method including receiving insurance applications forrepresentation and warranty insurance from lenders; determining whichlenders are insurable based on a risk assessment; issuing at least oneinsurance agreement to an insurable lender including pricing andconditions, conditions include the use of controls and the mortgage (orloan) profile for the particular lender, providing access to insuredlenders to a database containing entities which are ineligible toparticipate in the mortgage process to be able to obtain insurancecoverage for a particular mortgage, requiring insured lenders to use thedatabase during the mortgage application process as one condition of theinsurance agreement, training personnel of insured lenders on at leastone of the following use of controls, signs of fraud, use of theineligible database, and trends in the mortgage industry; providingaccess to a database containing information regarding lendersparticipating in the insurance program to insured lenders and allowinginsured lenders to search the database including performing comparisonsto other lenders; receiving mortgage production information from insuredlenders on a periodic basis; scrubbing the mortgage productioninformation against at least one database to eliminate from coverage anymortgages that cause a match with an entry in the database; calculatinga premium based on pricing in the insurance agreement for covering theremaining mortgages that are included in the mortgage productioninformation; handling any request for insurance coverage based on amisrepresentation in the financial information provided by or on behalfof the borrower; mitigating any financial loss that may result from theinsurance coverage request using at least legal counsel; and determiningwhether coverage exists, when coverage exists paying any proof of losswhile attempting to recover from participants who perpetrated themisrepresentation, when no coverage exists offering the requestinglender access to the legal counsel for continued mitigation of anyfinancial loss at the lender's expense.

At least one embodiment of the invention includes a method for a lenderto utilize an insurance program providing representation and warrantyinsurance from an insurer, the method including receiving a mortgageapplication, reviewing and underwriting the mortgage application,obtaining an appraisal of the property to be subject to a lien of themortgage, scrubbing information from the mortgage application againstthe contents of at least one database provided by the insurer, at leastone database includes an ineligible list, and approving or denying themortgage application, when the mortgage application is approved,performing the following: transmitting closing instructions to asettlement agent, submitting production information including the closedmortgage to the insurer for insurance coverage, and selling the mortgageto an investor.

At least one embodiment of the invention includes an insurance programsystem for providing an insurance program including insurance andrecovery services from at least one business unit to a plurality ofinsureds, including an operational entity having a first contractualrelationship with at least one of the insureds, the first contractualrelationship having terms whereby the operational entity providesinsurance services and recovery services from plural sources in responseto receipt of value from the insured based on information provided bythe insured, the operational entity further having at least one businessunit relationship with at least one of the business units, the businessunit relationship having terms whereby the business unit providesrecovery services to the operational entity for subsequent delivery tothe insured, and the operational entity further having at least onebusiness unit relationship with at least one of the business units, thesecond business unit relationship having terms whereby the business unitprovides due diligence services including providing a risk assessment ofthe lender to the operational entity for use in setting the premium rateto be paid by the insured to the operational entity.

At least one embodiment of the invention includes an insurance programsystem for providing representation and warranty insurance to lenders,including a due diligence entity having at least one designated duediligence agent; an insurer entity having at least one designatedoperational agent; a recovery entity having at least one designatedrecovery agent; the due diligence agent and the operational agentcooperating according to a predefined contractual relationship in whichthe operational agent undertakes to locate lenders interested inapplying for insurance and obtaining from the lenders applicationinformation for delivery to the due diligence agent; the operationalagent and the recovery agent cooperating according to a predefinedcontractual relationship in which the operational agent receives claimsbased on a repurchase request from an insured lender for delivery to therecovery agent.

At least one embodiment of the invention includes repurchase requestrecovery system for access by an operational entity having a pluralityof insureds and at least one insurance carrier, including a recoveryentity having a predefined contractual interface that specifies theterms by which the operational entity may access the recovery entity;the recovery entity functioning according to the predefined contractualinterface to receive information from the operational entity regarding aclaim filed by one of the plurality of insureds via the interface and toinvestigate and formulate a recovery strategy for recovering assetsusing the information, the recovery entity further functioning accordingto the predefined contractual interface to perform mitigation of theclaim for the insured and the insurance carrier, and when the payment ismade on the claim, providing subrogation services to the insurancecarrier and the operational entity.

At least one embodiment of the invention includes an insurance programsystem for access by a plurality of lenders, including an operationalentity having at least one designated operational agent; the operationalentity having a first predefined contractual interface that specifiesthe terms by which the lenders may access the operational entity; theoperational entity functioning according to the first predefinedcontractual interface to receive premiums via the first predefinedcontractual interface and to provide representation and warrantyinsurance to the lenders; the operational entity having a secondpredefined contractual interface with an insurance carrier, the secondpredefined contractual interface specifies the terms by which theoperational entity and the insurance carrier interact; the operationalentity functioning according to the second predefined contractualinterface to send value via the second predefined contractual interfaceand to receive access to financial reserves for representation andwarranty insurance coverage delivered to the lenders; the operationalentity having a first predefined business relationship interface with adue diligence entity that specifies the terms by which the operationalentity and the due diligence entity interact; the operational entityfunctioning according to the first predefined business relationshipinterface to send information regarding at least one lender via thefirst predefined business relationship interface and to receive a ratingof at least one lender from the due diligence entity; the operationalentity having a second predefined business relationship interface with arecovery entity that specifies the terms by which the operational entityand the recovery entity interact; the operational entity functioningaccording to the second predefined business relationship interface tosend information regarding at least one claim for coverage under therepresentation and warranty insurance coverage based on a financial lossas a result of material inaccuracies in the financial informationprovided by or on behalf of a borrower of a lender and to receiverecovery services from the recovery entity for mitigating the claim forthe lender or recovering the loss of the insurance carrier based on theclaim.

An objective of at least one embodiment of the invention is to provide away for a lender to combat fraud.

Another objective of at least one embodiment of the invention is toprovide a way to pass on secondary market costs relating to financiallosses resulting from at least one misrepresentation.

Another objective of at least one embodiment of the invention is toprovide to each investor security in the lender's ability to make theinvestor whole in a repurchase request situation when the repurchaserequest is covered.

Another objective of at least one embodiment of the invention is toprovide an incentive to lenders to increase pre-funding screening andlikewise encourage investors to provide lenders with indemnificationoptions.

Another objective of at least one embodiment of the invention is toprovide the mortgage industry with a tool that can assist in combatingfraud during the loan application process.

Another objective of at least one embodiment of the invention is toprovide an ineligible database to prevent fraud during the mortgageorigination process.

An advantage of at least one embodiment of the invention is that it is atool that should lead to a decrease in the number of fraud cases as therisk for the defrauders increases compared to the potential reward withactive recovery methods utilized against them including in part thetracking and locating of the defrauder's assets.

An advantage of at least one embodiment of the invention is that theinsurance can be an alternative or a substitute for a credit enhancementin connection with securitization of mortgage backed securities.

An advantage of at least one embodiment of the invention is that thepresence of insurance can reduce the cash reserves requirements of thelender.

Given the following enabling description of the drawings, the inventionshould become evident to a person of ordinary skill in the art.

IV. BRIEF DESCRIPTION OF THE DRAWINGS

The present invention is described with reference to the accompanyingdrawings. In the drawings, like reference numbers indicate identical orfunctionally similar elements.

FIGS. 1-6 illustrate flowcharts depicting exemplary embodimentsaccording to the invention.

FIGS. 7A-7D depict block diagrams of exemplary embodiments according tothe invention.

FIG. 8 depicts a flowchart illustrating an exemplary embodimentaccording to the invention.

FIG. 9 illustrates a flowchart depicting an exemplary embodimentaccording to the invention.

V. DETAILED DESCRIPTION OF THE DRAWINGS

The invention includes an insurance program for lenders in the mortgageindustry that are at risk of financial loss including a repurchaserequest made by an investor (i.e., a purchaser of the mortgage or loan),inability to sell the loan to an investor and thus remove the loan fromthe lender's warehouse line, and diminution in value of a loan beingheld by a lender in a portfolio. A mortgage loan means a loan secured bya first or junior lien on residential real property or by certificatesof stock or other evidence of ownership interests in, and proprietaryleases from, corporations or partnerships formed for the purpose ofcooperative ownership of real estate. The insurance program preferablyincludes the initial insurance application and establishment of aninsurance agreement, periodic issuing of individual coverages forparticular loans handled by the lender, training and consulting onimproved controls for lenders, maintaining a database(s) of ineligibleentities and loan information including providing access toparticipating lenders and/or information subscribers, and handling ofrepurchase request claims. The invention also preferably includesbusiness arrangements and structures used to provide the insuranceprogram to lenders in the mortgage industry. The insurance program inthe exemplary embodiments is offered by an insurance entity. One ofordinary skill in the art will appreciate based on this disclosure thatthe insurance program could be offered directly to lenders by aninsurance carrier (or insurer) and/or through an insuranceagent/broker(s).

The insurance program preferably in exchange for an insurance premiumwill in the event of a financial loss which is caused by a financialinaccuracy of information provided by the borrower or certain otherthird parties prior to or at the time of funding and not by in whole orin part a breach of certain guidelines by a lender's participation, theinsurer will pay the deficiency between 1) the mortgage balance plus thecost of mitigation/subrogation including foreclosure, resale, and anyinterest charges that have accumulated and 2) the net proceeds receivedupon sale after foreclosure of the property or disposition of the loan.In an alternative embodiment, coverage would not exist if the only basisfor the repurchase request was a bad appraisal obtained on the property;however, if there was a misstatement regarding something else inaddition to the bad appraisal, then coverage would exist. The paymentpreferably is capped at a coverage limit amount for the particularinsurance agreement.

As is typical in the insurance industry, a type of insurance is madeavailable to a target market, which in this case is the mortgageindustry and more particularly entities that handle loans for laterresale to other entities. FIG. 1 illustrates an exemplary method of theinvention. When a lender is interested in obtaining this type ofinsurance, the lender may request an insurance application or otherinformation about the insurance program, S105. In response to theinquiry, information is preferably received from the lender as part ofan insurance application that is sent to the lender in response to thelender's inquiry, S110. The requested information is directed atobtaining a summary of the lending operations of the applicant (i.e.,the lender). Examples of information that can provide the summaryinclude basic yields on loans, volume of loans, channels used to obtainloans (wholesale versus retail), quality of credit scores of borrowers,average loan size, and geographic breakdown of handled loans. Additionalexamples of information to be requested from the lender include thestructure of the lender including quality control and processingcomponents; quality control policies and procedures; the experiencelevels of management, processing, underwriting, and quality controlindividuals; historical information regarding repurchase requests andassociated losses, early payment default rate and numbers, andforeclosure rates and numbers; use and maintenance of suspension,exclusion, and approved lists of, for example, brokers, correspondents,and appraisers; training provided to employees including type and level;and secondary marketing. The information in at least one embodimentincludes copies of documentation for suspension, exclusion, and approvedlists, procedures, policies, prior production report(s), loan programinformation, and broker/correspondent agreement(s). This informationassists in setting pricing (for example, basis points) for thepremium(s) to charge the lender for loans that receive insurancecoverage. Another way to look at it is that the information beingrequested is directed at determining what loan (or more preferablymortgage) profile for the lender (or lender profile) will be insured,completing a satisfactory due diligence, verifying the lender uses bestpractices, and determining whether the lender has an environment thatcontrols risk.

In the illustrated embodiment, at least a portion of the informationfrom the lender is sent to an entity that will provide a riskassessment, S115. The risk assessment will lead to a risk classificationfor the lender. The entity in the illustrated embodiment is independentof the insurance entity but may be an affiliate entity (including asubsidiary) of the insurance entity such as a processing company if notthe insurance entity itself. The risk assessment is based on how thelender compares to other lenders in terms of controls, loan products,loan markets, and geographic markets that the lender is present. Therisk assessment in at least one exemplary embodiment is based on thequality of the origination process and the internal controls andprocedures used by the lender. The risk assessment in at least oneexemplary embodiment produces a rating of where along a spectrum thelender is compared to other lenders that assists in determining thelevel of risk involved with that lender's typical loan compared to otherlenders. A possible rating methodology for rating lenders is discussedand disclosed in U.S. Patent Application Ser. No. 60/552,712, which wasfiled on Mar. 15, 2004 and is hereby incorporated by reference. In analternative embodiment, while the risk assessment is occurring for thelender, the insurance entity continues to collect information from thelender as part of an insurance application process.

Step S120 includes the collection of any additional information that maybe needed to perform the risk analysis and/or be used to determinewhether the lender is insurable in step S135. Step S120 will not alwaysoccur, because there may be no need to obtain additional informationfrom the lender. Step S125 may occur at the same time, before or afterstep S120. Step S125 includes the lender receiving (or learningof/determining) the risk assessment results (or risk classification forthe lender), and, in at least one exemplary embodiment, the lender alsois informed of the results. When step S125, in at least one embodiment,is determining the risk assessment, step S125 includes the analysisdiscussed above in connection with step S115 and there becomes no needto send the information and step S115 as illustrated in FIG. 1 can beomitted. The risk assessment results in at least one embodiment includea rating of the lender.

Steps S130 through S145 are illustrated as discrete steps of the method,but one of ordinary skill in the art will understand based on thisdisclosure that these steps can be performed simultaneously andconcurrently such that the factors used in the analysis of S130 willdictate the determination of insurability, S135, and will also be usedin setting the pricing for the lender, S145. In at least one embodiment,the risk assessment steps S115, S125 are combined with the analysis stepS130. The insurance entity preferably analyzes the information collectedfrom the lender in view of the lender risk classification for thelender, S130. Factors of particular interest in the analysis include alender profile of the lender including loan type, loan size, loansource, and loan geographic information. The experience level of thelender and its personnel in the loan business, and more specifically theexperience level(s) with the currently offered products and channelsused to obtain loans. For example, if the lender is adding (or recentlyadded) new loan products and/or changing/adding channels to obtainloans, then because of the lower experience level, the lender will bemore likely to have processing mistakes and quite possibly be targetedby individuals looking to commit fraud since the lender may be moreaggressive and/or less sophisticated in the loan marketplace and thusthe risk of a financial loss will be higher. The analysis will lead todetermining whether the lender is insurable and at what level, S135,which determination will be based on the analysis.

The determination in at least one embodiment includes determining whatloan products and channels of the lender are insurable and to what levelof loan size and/or volume. If the determination is that the lender isuninsurable, the request for insurance will be denied or not accepted,S140. However, if the lender is insurable, then the insurance entitywill set the pricing (or target premium) such as basis points for thelender based on, for example, the factors used in the analysis above,S145. Other factors that are considered in setting the pricing includeprojecting what the expected losses would be based on similar lenderprofiles having the characteristics of the particular lender profile,claims history for the lender, and what training and support may beneeded by this lender to improve its controls. Although under oneembodiment, second lien loans might have a flat fee premium for themgiven the risks involved with this particular class of mortgages.

The determination, S135, in another exemplary embodiment includesdetermining that the lender is insurable if it and its employees receivetraining, such as the training discussed later in this description,regarding the lending process. This determination may include inquiringwith the requesting lender whether it will agree to receive thetraining. If the lender accepts this requirement, then includingtraining as a condition in the insurance agreement. When an inquiry isnot made, the offered insurance agreement can include as a conditionthat the lender accepting training. Under either option, the insuranceentity preferably takes into account the need for training indetermining the pricing of the insurance for this particular lender.

After the premium has been determined for the lender, an insuranceagreement is offered to the lender, S150. The insurance agreementpreferably includes the conditions upon which it is issued. Examples ofconditions include information about the calculation of the premium (orpremium modifiers or rate or basis points), which preferably is apercentage of the covered loan amount, to be charged for each coveredloan and the current lender profile for loans (i.e., the geographic mix,average loan size, product types, and channels). Other exemplaryembodiments include a list of approved investors and a requirement tomaintain and/or use an ineligible list maintained by the insurer and/orthe lender as possible condition(s).

Preferably, as part of the insurance agreement, the lender promises tocontinue to use existing controls on which the insurance agreement isbeing issued or alternatively to use in the future improved controlsthat have been agreed to by the insurer. The improved controls mayoriginate from the insurer as a result of ongoing trend analysis as willbe discussed below. Preferably, the lender approaches the insurer inadvance of implementation or within a reasonable time period after thelender has made a change in its controls as agreed to by the parties.

At least one exemplary embodiment includes a minimum premium amount tobe collected from the lender for each period as a condition. Asdiscussed above, pricing for the lender is based upon anticipate loanproduction numbers, i.e., the lender profile, in view of the controlsand experience of the lender (or the anticipated risk). If the averagesize of loans decreases while maintaining the overall production volumein terms of total mortgage value, then the risk will be higher than wasoriginally agreed to be covered and as such a minimum premium can becollected to take this into account. Or if the total mortgage value fora production period falls below the lender commitments for production,then the minimum premium will cover the ancillary services that areincluded as part of the illustrated insurance program. If the totalpremium for a period of time is lower than the minimum premium amount,then the minimum premium amount would be charged.

If the insurance agreement is acceptable to the lender, receiving anexecuted insurance agreement from the lender, S155. Upon receipt of theinsurance agreement and any required payment, the insurer issues aninsurance policy to the lender, S160. One of ordinary skill in the artwill appreciate based on this disclosure that these last two steps arecontingent upon the lender accepting the insurance agreement, and assuch may not occur every time.

Acceptance of a lender into the insurance program in at least oneembodiment is certification as to the quality of the lender and themortgages handled by the lender. In this embodiment, the methodillustrated in FIG. 1 further includes issuing a certification to thelender that it is a quality lender that uses appropriate controls forthe type and source of the loans handled by the lender (not shown).

Another exemplary embodiment adds a consulting and/or training aspect toassist lenders in improving and/or refining their controls based ontrends that are noticed in the mortgage industry and/or informationlearned from investigating claims for coverage filed by other lenders,S510.

A further exemplary embodiment adds the issuance of an insurancecertificate for each loan handled by the lender that is covered by theinsurance agreement and for which a premium has been received. Thisinsurance certificate may, for example, be a paper certificate, anelectronic certificate, or a field setting in a database. This insurancecertificate can then be included in the loan file by the lender toprovide assurance to a potential investor without the need for theinvestor to inquire with the insurer regarding a particular loan.

Another exemplary embodiment of the invention allows a lender to obtaincoverage for previous production upon establishment of the insuranceagreement. In this embodiment, preferably this is the sole opportunityfor a lender to obtain coverage for mortgages closed prior to executionof the insurance agreement and issuance of the insurance policy. Theprocess for obtaining coverage is that the mortgages to be covered wouldbe submitted as part of an initial production information (or coveragereport) about the mortgages closed over a prior period similar to whatis described below in connection with, for example, FIG. 2A. In afurther embodiment, a requirement is that the profile for thesemortgages is to be similar to the loan profile covered by the insuranceagreement, otherwise the pricing would be most likely different.

Another exemplary embodiment allows the lender to have one or morecorrespondent as an additional insured on the issued insurance policyfor loans purchased by the lender. The lender might request this if itwould also like its correspondent(s) to have the benefit of coverageunder the insurance policy and be removed from the list of possiblecandidates from which a contribution may be requested when a request forcoverage is made (assuming that the correspondent was not an activeparticipant in the misrepresentation that led to the request forcoverage). When the lender would like to include a correspondent(s),then as part of the risk assessment a review is made of informationabout the correspondent(s) to be able to properly determine theadditional risk from including the correspondent(s) as an additionalinsured. The risk assessment includes a review of information similar tothat collected from the lender. In at least one embodiment, the lenderwould be charged either an one time premium for the additionalinsured(s) or an increased pricing to take into account the presence ofan additional insured.

The insurance coverage of a particular loan is set for a predeterminedtime that preferably is shorter than the life of the loan. Theretypically is a wave of financial losses in the first three years ofloans with the biggest bulk of the losses occurring in the first year ofa loan. The first year losses include 1) repurchase requests based oneither quality control conducted by the investor or the loan has becomedelinquent and an early payment default exists, and 2) unsaleable loansheld by the lender on a warehouse line that may result from qualitycontrol of the lender. A second spike occurs between two to three yearsafter the loan is closed, because during the foreclosure/REO phase it islearned there was a misrepresentation during the loan applicationprocess. Preferably, the insurance policy for a particular loan runs forat least one year, more preferably at least for 18 months, and mostpreferably for at least three years.

The insurance agreement in another exemplary embodiment includes a listof eligible investors to whom the insured lenders can sell covered loansto and maintain coverage. This provides a list of known sources fromwhom a repurchase request may come from back to the lender. The list ispreferably updated on a regular basis based on, for example, marketdevelopments and information from insurance applications.

FIG. 2A illustrates an exemplary method for providing insurance coveragefor mortgages based on the mortgages themselves. Preferably as part ofthe insurance policy, the lender submits on a periodic basis, forexample, monthly production information (or monthly coverage reports)for loans handled by the lender, S205. Lenders may handle a variety ofloans including retail loans (loans originated and closed by the lender)and loans acquired through the wholesale market (either correspondent(originated and closed by another entity) or broker (originated byanother entity and closed by the lender)). The production informationpreferably includes a listing of the loans handled by the lender, thedollar figures for each loan, and identification information such as theaddress for the residence (or property) being covered by the loan, loanterms, the buyer(s) (or borrower(s)), and the seller(s) of the property.The identification information in at least one embodiment can be used toscrub the individual loans against a database, for example, as a fraudprevention tool. More preferably, the production information includes,but is not limited to, the interest rate and the term of the loan, theloan number, the loan to value number (LTV), the occupancy status, theappraisal value, the FICO credit score, the loan risk grade, thedocument type (i.e., what level of documentation was required to obtainthe mortgage such as no, low, etc.) for the loan, and the loan amount.The production information may also include the identities ofparticipants in obtaining and closing the loan including the originatingentity (if different than the lender such as the mortgage broker), theappraiser, the settlement agent, the real estate agent(s), the loanclosing entity (if different than the lender), and the abstract company.The originating entity will arise in the situation where there is achain of lenders involved with handling the application and/or loan,then it will preferably be the first lender that will be included in theproduction information although the entire chain of lenders could beincluded.

The production information preferably is analyzed, S210, in part tocreate a lender profile for that time period, which in this example is amonth, for comparing against the lender profile derived from theinsurance application submission. If the lender profile changes overtime in terms of make-up of the loans handled by the lender, forexample, the loan sources, the loan types, the geographic regions, etc.,then the divergence is tracked and after a period of time this may leadto a change in the premium charged the lender. A simple example of alender profile change is where the lender originally had 80% of theloans retail and 20% wholesale and if at a latter date the ratio is90%/10% (the risk decreases and this impacts the risk positively) or60%/40% (the risk increases and this impacts the risk negatively). Thechange in risk of financial loss then may be used to adjust the premiumcharged to the lender for coverage based on the change in the lenderprofile from when the lender originally applied for the insuranceagreement. As discussed above, one way to adjust the premium is byadjusting the premium modifier that is used to calculate the premium fora particular loan.

Of particular concern during this process are deviations from thelender's profile which would indicate an expansion into more riskybusiness without confirmation of the requisite controls being put inplace to mitigate the enhanced risks. For example, a lender may bechanging its business model from generating predominately prime retailmortgage loans to generating predominately wholesale subprime loans. Areview and assessment of whether the insured may continue to participatein the program or if so, if it can continue utilizing the currentparameters for its participation. This risk assessment, for instance,may condition continued participation on implementation of additionalcontrols and/or obtaining a certain level of risk mitigation trainingfor appropriate staff members.

An alternative embodiment would allow the lender to designate (oridentify) which loans it wants subject to insurance coverage. However,to avoid the lenders from only insuring the riskiest loans, thedesignation should be of particular loan segments (or categories) suchthat all of the wholesale or subprime mortgages would be covered. Partof the reason to allow a designation is to avoid loan categories thathave tight margins such as Fannie Mae conforming loans, which make itdifficult to factor in a premium into the offered mortgage rates andstill be competitive. The lender's designation will preferably impactthe premium modifier if the less risky portions of the lender profileare removed, which means that the riskier loans are being covered and bydefinition have a higher risk of a financial loss occurring and coveragebeing provoked.

The other purpose for the production information is to calculate theinsurance premium by taking each loan individually and multiplying theloan amount against a premium modifier, S225. Additional factors thatmay be considered include the lender risk assessment and market trends.If the trends in the mortgage market are such that certain types ofloans are becoming riskier, then another embodiment adds anothermultiplier for use in calculating the insurance premium. The lender riskassessment may provide its own multiplier in calculating the insurancepremium or incorporated into the premium modifier, the former wouldallow a more fluid calculation and flexibility in modifying the lenderrisk assessment as a standalone multiplier separate from multipliers forother aspects. Preferably, the insured is notified of the insurancepremium due, S230, and the insurance premium is collected, S235.

A further exemplary embodiment would allow a premium modifier fordifferent mortgage segments. An advantage to this is that as a lenderprofile fluctuates over a series of months, then this would allow forthe fluctuation and also be a better match to the loans being insured(i.e., a lower premium on safer loans versus a higher premium on riskierloans). One way to accomplish this is to have a market segment matrixthat has along one axis the market channel and along another axis thetypes of mortgages and segments of the mortgage market. The matrix mayinclude multipliers to use to adjust the premium charged a lender basedon the market segment and the overall premium for that lender. In atleast one exemplary implementation that uses a lender rating, the matrixincludes a submatrix for each rating level to more accurately allow theinsurer to charge an appropriate premium for lenders with differentratings. One factor that will impact the different multipliers is thepotential loss (or risk of financial loss) associated with differentmortgage types.

Another exemplary embodiment adds the application of trends in themortgage industry against the lender profile to determine whether aparticular lender profile has had a change in risk. For example, if alender primarily handles loans from the New York City area and there isan increase in mortgage fraud in the New York City area, then the riskof that lender profile increases. Conversely, if there is a decrease infraud in the New York City area due to, for example, an increase incriminal prosecution resources to combat mortgage fraud, then the riskof that lender profile decreases. A change in risk then can be used toadjust the premium charged to the lender for future covered loans.

Another exemplary aspect of the invention includes providing trainingand consulting advice to lenders through the insurance entity or acontract vendor, S510. The training preferably includes best practicesand fraud prevention information. Examples of fraud preventioninformation include red flags to look for in a loan application or typesof information to look for in the loan application file and common fraudschemes, and the information also preferably includes how to address andcombat fraud based on the red flags and known schemes. The training alsopreferably includes information on how to control the conduct of closingagents, for example, through the use of properly structured closinginstructions. The consulting aspects preferably include reviewingcontrols and closing practices used by a lender and then the tailoringof training to address weaknesses or other problems that may bepresented by the lender's controls and closing practices. Consulting inanother embodiment includes advice on setting up of controls and closingpractices including the drafting of the closing instructions.

Consulting and training in another embodiment includes thestandardization of controls across lenders particularly controls thatprove to be effective in combating misrepresentations and/or fraud. Overtime as different lenders are exposed to the developed controls, anindustry standard will be created.

As trends are learned and/or noticed, the insurer is able to create andfine-tune controls to take into account the trends. When the controlsare improved and/or trends spotted, the insurer can provide thisinformation to its insureds and also other entities that might subscribeto such information in the form of a newsletter or computer database. Inat least one embodiment this information is incorporated into thetraining offered to the insureds.

If based on a review of a lender's files and/or information submitted aspart of the insurance application process it is noticed that controlsthat exist and are in place at the lender are not being utilized fully,then the lender can be offered training for the relevant staff of thelender on the proper use of the controls to prevent fraud and otherproblems, S510. In addition, training can be offered in using trends tospot likely circumstances that might be a flag for or indicator of amisrepresentation. To provide a more comprehensive adoption of existingcontrols, training may be offered to the brokers that originate loans onbehalf of the lender or correspondent who sells loans to the lender.

In at least one embodiment, the insurance program includes maintenanceof a database that includes entities that based upon their respectivehistories are found to be ineligible to participate in mortgagetransactions, S505. The ineligible database (or exclusionary database),for example, includes searchable databases and a paper publication(s).An alternative exemplary embodiment is for a list to be used as thedatabase. Preferably, the database (or the list) is culled from avariety of sources including, for example, the U.S. Department ofHousing and Urban Development Limited Denial Participation list (HUDLDP), investor ineligible lists that are received, internally compiledlists, fraud file reviews and claim file reviews performed as part ofdue diligence, parties indicted on mortgage fraud related criminalcounts (e.g., wire fraud, mail fraud, etc.) as reported in a pressrelease(s) and other media outlets, and other national lists availableto the lending industry such as disciplinary actions reported by theAppraisal Subcommittee of the Federal Financial Institutions ExaminationCouncil (ASC) at www.asc.gov. More preferably, the ineligible databaseis searchable by state, party name, and the service provided (e.g.,broker, appraiser, etc.). More preferably, the database is updated asinformation becomes available. The ineligible database may be providedto information subscribers. The ineligible database also may be used toperform analysis of lenders to see if there is any overlap between theentities used by the lender and the ineligible list with the resultingrating for the lender being negatively impacted.

In at least one exemplary embodiment illustrated in FIG. 2B, loaninformation is scrubbed against the ineligible database(s) to see ifthere are any matches, S215. The scrubbing preferably occurs as part ofthe analysis in setting the insurance premium modifier based on thelender profile. Alternatively, the ineligible database is distributed tolenders having an insurance policy (or other entities such asinformation subscribers) for the lenders to scrub pending mortgageapplications against, S505.

When the production information is received, the participating entitiesof each loan are compared to the ineligible database to see if there isa match, S215. When no match occurs for a loan, an insurance premium iscalculated, S225. When there is a match, S220, there are a variety ofoptions that may occur including, for example, a simple notification ofthis fact to the lender, a premium increase for that particular loanthat would exceed the normal premium for that particular loan, arejection of that loan for coverage, or exclusion from coverage of theportion of that loan the entity participated in. The simple notificationmay include a recommendation that the lender update their own ineligiblelist to include the particular entity and/or review the file for thatloan to determine if there were any irregularities in the loan file inorder to attempt to address the irregularity.

An approach in at least one exemplary embodiment is that for a certainperiod of time, for example, 60-90 days or 6 months (but shorter orlonger time periods may be utilized), after a lender beginsparticipation in the insurance program and/or after an entity, whichcaused the match, is added to the ineligible database, there is a graceperiod during which the lender is notified of the match. Thisalternative approach would allow the lender to learn more about theineligible database and have the opportunity to use the database as partof its own procedures, since there is usually a lead time of a few weeksto a few months from the time a loan application is submitted to closingof the loan which means that a loan could currently be being processedthat involves an ineligible entity in some capacity. The delay in usewill minimize lender disruptions. Even if the grace period was to beutilized, the lender preferably can not ignore its own list ofineligible entities and consider the grace period to be a free pass.

An approach in at least one exemplary embodiment is that the lenders arerequired to utilize the ineligible database to scrub all loans handledby them, S505. When an addition is made to the ineligible database, thenthe lenders will have to scrub the addition against their currentlypending loan applications that have not closed yet.

Another exemplary embodiment divides the ineligible list when thedatabase is a list into multiple parts. For example, a first list wouldinclude entities that are ineligible because of involvement in amisrepresentation that leads to a claim, loss, etc. in the insuranceprogram. This first list would be based on information provided to orlearned by the insurance entity in the course of investigating coveragerequests. When a match occurs with the first list, then the loanapplication will not be covered and should be denied until a replacementis found for the entity giving rise to the match. A second list wouldinclude information derived from public sources or other third parties(such as lenders' ineligible lists). The second list in at least oneembodiment is an advisory list that requires a closer review of the loanapplication file, because of the involvement of an entity on the list.However, a match to either list could be a basis for denial of insurancecoverage for the loan application.

Another exemplary embodiment adds additional databases to scrub loanscontained in the submitted production information against either by theinsurer and/or the lender, S215. An exemplary database is a loandatabase that includes information on the loans that have been submittedto the insurer for potential coverage with an alternative embodimentlimiting the loans to those that were actually covered and not loansthat were not designated and/or coverage was refused. Like theineligible database, the loan database includes, for example, a computerdatabase (listing and/or searchable) and/or a paper publication(s).

A scrub of new loans against the loan database may locate a match thatis indicative of fraud such as the same property being sold in shortsuccession for an inflated price or a neighboring property that wasrecently sold for a much lower price without major differences existingbetween the two properties. Another match might be of who the occupantis for the house being acquired with the new loan if that person is alsolisted as occupying another property that has not been sold or receiveda contract as this would potentially indicate a misrepresentation as towho the actual occupant is to be for the property being acquired withthe new loan and/or is for the property purchased with the previousloan. Additional scrubbing preferably includes the property address andthe identity of the borrower(s). If a match occurs, S220, thenpreferably a verification is done to see if the lender followed theirown procedures and/or an insurance exclusion may be included to notprovide coverage for what caused the match but otherwise provideinsurance coverage for any other coverable misrepresentation. So forexample, if the match was for occupancy and the financial loss was basedon an incorrect occupancy, then there may be no coverage for thisfinancial loss. But if the financial loss resulted from misstated incomelevels, then there would be coverage for the financial loss. Anotherexample of a situation that can be located during a scrub is a propertythat has been sold or transferred at least once during the last year (orsome other predetermined time) that would be indicative of a flip. Ifthis situation is detected, then the insurance coverage may exclude fromcoverage inflation of the property value and other issues that relate toflipping. Under either example, the lender may be contacted to determinewhether the controls were used properly. If the controls were properlyused, then to determine whether there is documentation in the file toshow that the match was based on incorrect/inaccurate information. Ifafter reviewing the lender file, the information in the database isfound to be incorrect/inaccurate, then to include the cause for thematch in the coverage. A benefit to addressing the match at this stageis that if the reason for the match did lead to a financial loss,coverage would probably be denied because the match is indicative of amistake that occurred during closing that if closing was performedproperly the reason for the match would have been uncovered. Preferably,if there is a coverage exclusion, then there is no reduction in thepremium for the loan in question.

Another possible match that might arise is that the loan in questionalready is covered by insurance paid for by another lender in thesituation where the submitting lender (or requesting entity) buys loansfrom other lenders to then sell to investors. In this situation, thesecond lender preferably is not charged a premium since coverage alreadyexists for the loan. In the situation where there is a repurchaserequest for this loan, the repurchase request will likely be pushed backto the prior lender (i.e., the lender that has insurance coverageclosest to the origination of the mortgage) for a claim to be made bythat lender.

The possibility exists when an insurance policy issues that a claim (orcoverage request) will be made against it. As such the inventionincludes a method and a system for handling claims for coverage when arepurchase request is made or other covered financial loss occurs, andan exemplary embodiment is illustrated in FIG. 3A. The claims handlingportion of the invention in at least one embodiment includes providinglegal counsel to the lender as part of the insurance program todetermine possible avenues of recovery of the losses suffered by thelender including representation in recovering those monies. In thoseembodiments, the legal counsel would perform these services in additionto recovery of the losses incurred by the insurance entity and/orinsurance carrier.

The claim handling aspect of the exemplary embodiment begins withreceiving notification of a claim from the lender based on a repurchaserequest or other covered financial loss, S305. Preferably asillustrated, upon receipt of the claim, the insurance entity conducts apreliminary review to ascertain if the loan is insured, and issues areservation of rights to the insured when the loan has been and remainsinsured, S310.

Preferably the claim and loan file are reviewed, S315, and mitigation isbegun as information is learned during the review, S320; and as suchthese steps may be performed at the same time, in the illustrated order,or in reverse order depending upon the circumstances and theimplementation used. The mitigation process is more fully developed anddiscussed below, but preferably as part of the insurance program theinsurance entity makes use of a legal team to assist in the file reviewand mitigation of a claim.

One of the initial steps of the review, S315, is to compare the loanorigination process with the process dictated by the requirements of theinsurance agreement. Examples of the insurance agreement requirementsinclude use of the controls that were in existence at the time theinsurance application was submitted, use of an ineligible list, and anyother conditions incorporated into the insurance agreement. The review,S315, preferably includes reviewing the loan file to determine what themisrepresentation was, to see if all of the procedures were followed,and to determine whether there was any type of collusion and whether itinvolved the lender or not. This review may be performed by an entityother than the insurance entity, for example, outside counsel. Thereview is looking for an explanation as to what happened, for example,from a fraudulent loan that was able to circumvent the lender's correctuse of its existing controls to a situation where collusion exists amongsome of the entities that participated in procuring and/or closing theloan. Sometimes even when all reasonable care is taken in using theexisting controls, a misrepresentation by the borrower occurs due to nofault of the lender or the other entities that participated in the loanprocess. At the other extreme is where there was outright collusionbetween the borrower and other entities to obtain the loan throughmisrepresentation that can include, for example, misstatements as toincome and/or employment, a straw man as the borrower, and carelessnessin using the controls that are in place with the lender and/or broker.

Based on this review, a determination can be made whether insurancecoverage exists or alternatively to provide coverage or reject theclaim, S325, based on whether the risk that gave rise to the financialloss was covered. If the determination is that there is no coverage,then the insured is informed of this, S330, and the circumstances aroundthe repurchase request or other financial loss may be used as a teachingexample and included in analysis for finding trends in the mortgageindustry. Even if the claim is denied, the insured preferably receivesthe benefit of the mitigation and formulated strategy up to that pointand in one embodiment is given the opportunity to retain the legalcounsel at the insured's expense to pursue mitigation and possible lossrecovery. If it is determined there is coverage of the claim, thenpreferably attempts to mitigate are continued, S335. As illustrated inFIG. 3B, sometimes there is a request for coverage that is clear cutsuch as the loan is not covered by an insurance policy or the loan iscovered with evidence of a misrepresentation being made to the insured,such that there is no need to issue a reservation of rights letter andmitigation, S320, may begin as part of the review process, S315. Underthis situation, the coverage determination, S325-S330 is made when thecoverage request is received.

If a proof of loss is presented, then paying the loss, S340. The proofof loss preferably includes the discount between the mortgage valueand 1) the sale price of the property through a scratch and dent sale,2) the foreclosure sale price, or 3) refinanced mortgage value. Theproof of loss also includes any expenses incurred by the repurchaserequester (if based on a repurchase request) and any accumulatedinterest on the loan at the time of the disposition of the loan. Theinsurer then preferably attempts to recover any loss throughsubrogation, S345. As with mitigation, possible recovery sources includethe participants in the loan procurement and closing such as the titlecompany, bond issuers for the appraiser and the closing agent, and theborrower. The subrogation process is an extension and continuation ofthe mitigation strategy.

Mitigation, S320, S335, of the claim preferably is handled by a legalteam. Mitigation of the potential exposure to the insurer begins bylooking into possible recovery sources including: participants in theloan origination, procurement, and/or closing; foreclosure; a scratchand dent sale of the loan; and/or refinance the property through theoriginating entity although the options are impacted by circumstances ofthe basis for the particular financial loss. The invention preferablyincludes the use of several tools to control losses to the insuranceentity, which may be the insurer depending upon the implementation used,and lenders. Several of the tools may utilize outside counsel to recoverthe subrogation amount and any other loss including losses above thesubrogation amount incurred by the lender(s). The easiest mitigationprong is to refinance the loan through the origination source such asthe broker and pay off the original loan. The more difficult mitigationprong is to investigate the loan file and the events around the loan todetermine which participants have liability and/or are capable ofcontribution to cover the anticipated (or known) loss with the next stepbeing asset recovery to cover the anticipated (or known) loss.

The foreclosure option begins with obtaining a market valuation todetermine what the potential exposure is if foreclosure were to occur.Examples of a market valuation include a broker price opinion or anautomated review of computer databases to determine the value of theproperty. The results of the market valuation will greatly impact theoverall strategy as this will provide an indication of what is at riskand will need to be recovered from other entities and/or covered by theinsurance carrier.

Recovery from other participants begins with making a decision oncommencing legal action against, or at a minimum beginning negotiationswith, individuals believed culpable in the misrepresentation and who areviewed as having resources available for payment of money to mitigateany losses. Possible recovery sources include the bonded/insuredindividuals and the entities that bonded/insured theentities/individuals that participated in the misrepresentation. Thiscase becomes stronger if there is an entity that did not follow theinstructions provided by the lender, for example, if the title agentand/or closing agent did not follow the closing letter/instructions fromthe lender, this would bolster the claim against them.

Another available option, most likely as part of a negotiation strategy,is to have the entity that originated the loan assist the borrower inrefinancing the property and thus obtain a payoff of the loan in aquicker manner than is possible through foreclosure. This is an optionwhen the financial loss is based on a misrepresentation that does notprevent the borrower from obtaining a new loan at a different interestrate, a different document type, or a different LTV.

Another possibility is to work out a negotiated settlement between theinvestor, the lender, and the insurer such that any loss is sharedbetween the three entities in the spirit of cooperation and possiblerecognition of a long-term relationship that may exist between theinvestor and the lender. Or as part of the negotiations, the investoragrees to hold the property through foreclosure or other mortgagedisposition in return for having any of its losses covered instead ofhaving the loan repurchased as requested in 30 days, which is thetypical period for completing the loan repurchase.

Another possibility is to sell the loan in question on a “scratch anddent” basis, which means to sell the loan with all of the associatedproblems at a price below market price. An example of this type of saleis where the loan is sold to a buyer who pays a discounted price for theloan such as 85 cents on the dollar. This type of sale facilitates theremoval of the loan from the lender's portfolio and the accumulation oflosses to the insured, the insurance entity, and the insurer as a resultof unpaid interest, foreclosure expenses, marketing expenses and so on.Through the reduction of these realized losses to lenders, there is acorresponding reduction on the potential loss to the insurer. Topotentially maximize recovery (in part through reducing transactionscosts), loans at risk for a financial loss based on a misrepresentationmay be grouped together and sold as a lot (or pool) to a buyer.

A further exemplary embodiment adds analyzing the claim to determinewhether there are any new trends occurring when taking the current claimwith other claims and changes in the marketplace. When a trend is found,then a variety of things can occur. First, the establishment of thetrend can be used to further refine and improve recommended controls orthe controls used by the lenders participating in the insurance program.A second related use is to further analyze the trends for ways toimprove the controls and/or loan practices to counteract and/or takeadvantage of the trends. A third use is to let the lenders and otherentities such as entities that subscribe to such information know of theexistence of the trend.

A fourth use is to take a proactive approach based on trends by checkingwith loan servicing entities to see if there are loans that have anentity (such as the borrower, the appraiser, the broker, or closingagent) in common with a loan that a financial loss will occur with andthat fall within a given trend and are delinquent, because delinquencyis a precursor to a repurchase request or other financial loss. The nextstep if there is a delinquency is to obtain a broker price opinion onthe property to see if the property value is sufficient to cover themortgage principal, which if it is, then a wait and see approach can betaken since there is less risk to being able to recover sufficientmonies to cover the financial loss. However, if the broker price opinionindicates that the property is upside down (i.e., the property is worthless than the loan), then the property could be grouped together withother loans that are similarly situated. These loans along with the loanon which there is a risk of a financial loss in at least one exemplaryembodiment are combined together in making a claim against theentity(ies) that was involved with these loans for a settlement on allof the loans, if there is a potential basis for recovery.

A still further exemplary embodiment adds adjusting the premium modifierfor lenders who are impacted by the new found trend and/or share similarcontrols and profiles to lenders that are incurring financial lossesbased on a misrepresentation.

In at least one embodiment, another situation that may be covered by theinsurance with an appropriate endorsement is when a loan is approved forcoverage and the premium is paid for the coverage, the loan turns out tobe unsaleable because a problem is found during the post-closing qualitycontrol by the lender. In most situations, lenders operate using awarehouse line that provides them with the money to be able to closeloans and then turn around and sell that same loan to an investor. Theproblem is that the loans can typically stay on the warehouse line for alimited period of time such as sixty (60) days, which is typically not aproblem unless the loan can not be resold. This situation would behandled similar to a repurchase request when the endorsement is used andthe warehouse lender tells the lender to get the loan off the warehouseline.

Another exemplary embodiment adds notifying the insurance carrier 730 ofthe possible loss to allow a reserve to be set simultaneously with orafter, for example, issuance of the reservation of rights, S310, ordetermining that coverage exists, S325.

FIG. 4 illustrates an exemplary method for providing a databasecontaining information about lenders for access by lenders and/or otherinformation subscribers. The lender database in at least one embodimentis included as part of the insurance program. The lender databaseprovides information that allows a comparison to be made betweenlenders, for example, in terms of loan profile and performance, andallows for the comparison to be done of similar lenders, for example, interms of loan size and loan products. The comparison information, forexample, includes claims made by the lender (or requests for coverage),loan production numbers, and other relevant information that may beprovided with identification information of the lender including name orartificial code to prevent identification of a competitor lender byname. The comparison information alternatively may be provided withidentifying information of the lender removed. The information may alsobe presented as industry derived numbers with breakouts based ongeography, size, averages, medians, and/or percentage segments. Themethod begins with populating and/or updating a lender database withinformation derived from insurance applications, production information,and claims, S410. Providing access to the lender database to insuredlenders and/or other information subscribers through, for example,computer readable medium, a website, and/or a newsletter/bulletin, S415.The lender database access includes accepting search queries anddisplaying the search results to the user.

The methods illustrated in FIGS. 1-4 and the embodiments described abovetogether form an insurance program for representation and warrantyinsurance for lenders in the mortgage industry. FIG. 5 illustrates amethod for an exemplary insurance program for representation andwarranty insurance for lenders in the mortgage industry to cover afinancial loss as a result of material inaccuracies in the financialinformation provided by or on behalf of the borrower. One of ordinaryskill in the art based on this disclosure will appreciate that theillustrated order of steps in FIG. 5 is an exemplary order as most ofthe steps may be reorder, rearrange, and/or simultaneously performed (orgrouped) with at least one other step.

The insurance program in at least one embodiment includes a method forlenders to process new mortgage applications and obtain insurance forclosed loans as illustrated in FIG. 6. The lender begins the process byreceiving a mortgage application from a perspective borrower, S605. Thelender reviews the mortgage application including underwriting theapplication or having another entity perform the underwriting, S610. Anappraisal of the property that will be subject to the loan is obtained,S615. Information from the mortgage application and the participants inthe closing of the loan is scrubbed against an ineligible database(s)that preferably is provided by the insurer as part of an insuranceprogram, S620. In at least one embodiment, other participants that willparticipate in the mortgage transaction including at least one of thefollowing: the appraiser, the title company, the settlement agent, andthe real estate agent(s) are also scrubbed against the ineligibledatabase. If a match occurs with the ineligible database, then thelender does at least one of the following: denies the mortgageapplication, conducts further investigation, and requires the applicantto find a replacement entity for the entity that caused the matchassuming the applicant was not the source of the match. Steps S610-S620may be performed in any order or simultaneously or two of the threesteps may be done concurrently. Steps 610-S620 if performed inaccordance with the invention are to be performed using the agreed tocontrols that are a condition of the insurance agreement. In at leastone embodiment, information from the mortgage application is scrubbedagainst a loan database with information relating to prior loantransactions for matches as discussed above. If there is a match betweenthe mortgage application and the loan database that indicates amisrepresentation, then determining whether the lender wants to proceedby assuming the risk for any mortgage (since the mortgage will not becovered in the insurance program) that results from the mortgageapplication or investigating the reason for the match to confirm therewas no misrepresentation, S625-S630. Alternatively, the lender maydecide to deny the mortgage application, for example, either because itdoes not want to assume the risk or further investigation confirms thatthere has been a misrepresentation. If the lender decides to proceedwith the mortgage application, for example, because it will assume therisk, further investigation determined there was not a problem, or themortgage application does not produce a match; then the lender transmitsinstructions to the settlement agent for handling the mortgage closingand transfer of monies, S635. Conducting post-closing quality control ofthe loan after closing, S640. Submitting the loan as part of theproduction information for insurance coverage, S645. Selling the loan toanother entity, S650. Steps S640-S650 may be performed in any order orsimultaneously or two of the three steps may be done concurrently.

FIGS. 7A-7D illustrate block diagrams showing exemplary businessstructures and relationships between different entities for performingthe above-discussed methods that are illustrated in FIGS. 1-5. Thevarious illustrated entities are connected to other entities through,for example, contractual relationships, predefined contractualinterfaces, and business unit relationships.

The insurance enterprise (or insurance entity) 710 is the conduitthrough which the insurance program is implemented and provided tolenders 750 or aggregating entity (or aggregator) 755 throughcontractual relationships that have predefined contractual interface(s)defining the relationship. One of ordinary skill in the art willappreciate that although only one lender 750/aggregating entity 755 andinvestor 760 are illustrated in FIGS. 7A-7D there can be a plurality oflenders 750/aggregators 755 each having an insurance agreementrelationship with the insurance enterprise 710 and each lender750/aggregator 755 could work with multiple investors 760 instead of theillustrated one to one relationship. The insurance enterprise 710 hasarrangement(s) (or contractual relationship(s)) with at least oneunderwriting entity (or underwriter) 724, or as illustrated in FIG. 7Athe underwriting entity 724 may be a part of the insurance enterprise710 or, alternatively, the underwriting entity 724 may be separate fromthe insurance enterprise 710 (not shown). The insurance enterprise 710and/or the underwriting entity 724 have arrangement(s) (or contractualrelationship(s)) with at least one insurance carrier 730. The insurancecarrier 730 and the underwriting entity 724 in at least one embodimentmay be part of one entity 732′ as illustrated in FIG. 7B or,alternatively, included within the insurance enterprise 710′ asillustrated in FIG. 7C. These arrangements have predefined contractualinterface(s) defining the relationship such that the insurance carrier730 provides money to pay any covered losses relating to repurchaserequests in exchange for payment of monies from the insurance enterprise710 that are based on collected premiums from lenders 750.

The insurance enterprise (or insurance program system) 710 is anexemplary entity that is capable of performing the methods illustrated,for example, in FIGS. 1-5, and as the insurance enterprise 710 isillustrated in, for example, FIG. 7A may include a variety ofsub-entities. The illustrated insurance enterprise 710 includes anoperational entity 712, a due diligence entity 714, a recovery entity716, a database entity 718, a training entity 720, a disseminationentity 722, and the underwriting entity 724. As discussed above, each ofthese sub-entities may be combined in a variety of ways depending uponthe actual implementation, and some exemplary combinations are discussedbelow. Furthermore, the sub-entities may include, for example,contracted entities that are separate from the insurance enterprise 710,for example, the legal team may be an outside law firm and the duediligence entity 714 may be a separate entity such as a vendor. Each ofthese entities may further include a designated agent for handling theinterrelationships between the entities themselves and entities externalto the insurance enterprise 710.

The operational entity 712 preferably is the hub for the other insuranceenterprise entities, which in the illustrated embodiment are on spokes.The operational entity 712 makes contact with or is contacted by lenders750 who are interested in insurance covering repurchase requests,inability to sell a mortgage, and/or diminution in value of a portfolioloan. For example, FIG. 1 illustrates a method that may be performed byoperational entity 712 in establishing a contractual relationship via aninsurance agreement with the lender 750. As part of this process, theoperational entity 712 uses the due diligence entity 714 to perform duediligence and provide the risk assessment (or rating) of the lender 750and the underwriting entity 724 provides underwriting services for theinsurance agreement. The establishment of the risk classification, whichis based on the risk assessment, for a lender 750 in the illustratedembodiment is established by the operational entity 712 and/or the duediligence entity 714 or alternatively a subgroup of individuals takenfrom one or both of these entities. As discussed above, the operationalentity 712 could include the due diligence entity 714 as part of it.

The operational entity 712 makes contact with or is contacted byaggregators 755 who are interested in insurance covering repurchaserequests, inability to sell a mortgage, and/or diminution in value of aportfolio loan. For example, FIG. 9 illustrates a method that may beperformed by operational entity 712 in establishing a contractualrelationship via an insurance agreement with the aggregator 755. As partof this process, the operational entity 712 uses the due diligenceentity 714 to perform due diligence and provide the risk assessment (orrating) of the aggregator 755 and the mortgage pool assembled by theaggregator 755 and the underwriting entity 724 provides underwritingservices for the insurance agreement. The establishment of the riskclassification, which is based on the risk assessment, for theaggregator 755 in the illustrated embodiment of FIG. 9 is established bythe operational entity 712 and/or the due diligence entity 714 oralternatively a subgroup of individuals taken from one or both of theseentities. As discussed above, the operational entity 712 could includethe due diligence entity 714 as part of it. The operational entity 712based on the risk assessment would determine the insurance premium forthe mortgage pool, inform the aggregator 755 of the premium amount, andcollect the premium from the aggregator 755.

As illustrated in FIGS. 7A-7D, the operational entity 712 along with thedue diligence entity 714, which may be replaced by an analysis entity,would perform the exemplary method illustrated, for example, in FIG. 2.Although the operational entity 712 may perform this method without theassistance of other entities within or associated with the insuranceenterprise 710. The operational entity 712 under the insuranceagreement, which serves as the predefined contractual interface, wouldreceive production information from each lender 750. The operationalentity 712 then would perform the analysis or calculations althougheither or both of these steps could be performed by the due diligenceentity 714 through the use of a business unit relationship or otherinterface. The operational entity 712 would provide notification to andcollect the insurance premium from the lender 750 as provided for in theinsurance agreement, which defines the contractual relationship. In atleast one embodiment, the loan production information is provided to thedatabase entity 718 through a business unit relationship with theoperational entity 712. The loan production information is added to aloan database. The business unit relationship allows for the operationalentity 712 to search the loan database maintained by the database entity718. In at least one embodiment the due diligence entity 714 hasbusiness unit relationship with the database entity 718 for access tothe loan database.

As illustrated in, for example, FIG. 7A, the operational entity 712along with the recovery entity 716 would perform the exemplary methodillustrated in FIG. 3. Although the operational entity 712 may performthis method without the assistance of other entities within orassociated with the insurance enterprise 710. A business unitrelationship or predefined contractual interface exists between theoperational entity 712 and the recovery entity 716 such that therecovery entity 716 provides recovery services to the operational entity712 to mitigate any potential loss from a claim filed by an insured (alender 750 or an aggregator 755) and the insurance carrier 730 and/orprovide subrogation services to the operational entity 712 and theinsurance carrier 730 after a proof of loss is paid. These services areprovided to the operational entity 712 for potential subsequent deliveryto the insured or the insurance carrier 730 depending upon the timing ofthe services being performed. The business unit relationship providesfor operational entity 712 to provide information relating to a claimthat is received from the insured. The recovery entity 716 may alsoprovide file review services to the operational entity 712 through theabove relationship or a second business unit relationship to allow theoperational entity 712 to issue a reservation of rights letter to theinsured. This file review preferably is done as part of the recoveryservices to allow a recovery strategy to be formulated. If adetermination is made that the claim is not covered by the insuranceagreement, then the insured is given the opportunity to establish acontractual relationship with the recovery entity 716 separate from therelationship established through the insurance agreement to continue topursue potential recovery to offset the repurchase request outside ofthe insurance agreement and at the lender's expense.

The operational entity 712 and the insurance carrier 730 have apredefined contractual interface that when the operational entity 712receives a proof of loss for a covered claim from the insured that theproof of loss within coverage limits is then presented to the insurancecarrier 730 for payment to the operational entity 712 for subsequentdelivery to the insured who presented the proof of loss. Alternatively,the payment may be made direct to the insured from the insurance carrier730. If the proof of loss is in excess of the coverage limits, thenpotentially denying any payment in excess of the coverage limits. Thecontractual interface between the insurance carrier 730 and theoperational entity 712 includes payment of an amount of money based onthe collected premiums from insureds.

The database entity 718 illustrated in, for example, FIG. 7A has abusiness relationship with the operational entity 712 for delivery ofinformation contained in a database(s). Examples of informationcontained in the database(s) include loan information (the loandatabase) and a list of ineligible entities that are not to be involvedin the mortgage process (the ineligible database). The database entity718 has business relationships with the other insurance enterpriseentities to provide access to the information in exchange forinformation to update the information maintained by the database entity718. In at least one embodiment, the database entity 718 has a businessrelationship with the dissemination entity for providing access tooutside entities such as lenders 750 or possibly other informationsubscribers 780 for database searching as illustrated in FIG. 7D. In atone embodiment, the database entity 718 is eliminated from the insuranceenterprise 710. In at least one embodiment, the database entity 718 ispart of the due diligence entity 714.

The training entity 720 illustrated in, for example, FIG. 7A has abusiness relationship with the operational entity 712 for delivery oftraining relating to controls and procedures regarding the mortgageprocess to the operational entity 712 for delivery to at least onelender 750. The training and suggested controls are refined based uponinput from at least one of the operational entity 712, the due diligence714, the recovery entity 716, and the underwriting entity 724 based uponthose entities analysis including, for example, trend analysis ofclaims, insurance applications, loan files, and industry information. Inat least one embodiment, the training entity 720 is eliminated from theinsurance enterprise 710 (not shown).

The dissemination entity 722 illustrated in, for example, FIG. 7D has abusiness relationship with the database entity 718 for delivery ofdatabase access to at least one lender 750 or other informationsubscriber 780. In at least one embodiment, the dissemination entity 722is eliminated from the insurance enterprise 710. In at least oneembodiment, the dissemination entity 722 and database entity 718 arecombined into one information entity 723.

In another exemplary embodiment the database entity 718 providesdatabase access to the due diligence entity 714 or some other entitythat then provides a service to lenders and correspondents of mortgageapplication review. The mortgage application review in at least oneembodiment results in a pass/fail determination of the mortgageapplication based on information in the databases. FIG. 8 provides anexemplary method for providing a review service for an entity thatreceives a mortgage application such as a lender or a correspondent, anddepending upon the level of review to be performed by a broker whoforwards a mortgage application to a lender, a broker. After therelationship is established between the reviewing entity and theapplication receiver, information about at least one mortgageapplication is received the reviewing entity for processing, S805. Theinformation in at least one embodiment includes identification of theproposed borrower, the property address and price, and at least oneparticipating entity in the mortgage procurement and closing processsuch as the appraiser, closing agent, settlement agent, or seller. Thisinformation is then compared to at least one database, S810. Examples ofthe database include one of the above ineligible databases and the loandatabase. The information during the comparison is scrubbed against theinformation in the database(s) for any matches similar, for example, tothe scrubbing discussed above for lenders in the insurance program. Areview is done of the results from the comparison, S815, to see 1) ifthere was a match to the ineligible database (or list) resulting in themortgage application receiving a fail, S820; 2) if there was a match tothe loan database and looking at the reason for the match to determineif it is likely a result of a misrepresentation resulting in themortgage application receiving a fail, S825; 3) both a match to theineligible database and a match to the loan database resulting in themortgage application receiving a fail, S830; or 4) no match or the matchto the loan database was not the result of a misrepresentation resultingin the mortgage application receiving a pass, S835. If only one databaseis compared to in S810, then the review that occurs S815 is suitablyadjusted based on this disclosure. The result then is reported to theapplication receiver, S840. In at least one embodiment, the reason forthe result is provided to the application receiver.

Another exemplary embodiment of the invention is illustrated in FIG. 9and relates to the pooling (or aggregation) of mortgages that typicallycome from multiple lenders. Typically, when mortgages are pooledtogether it is for the purpose of selling securities tied to themortgage pool to investors. The aggregating entity receives most of itsprofit up front when it sells the mortgage pool to another investor(s)or a trust that in turn will sell the securities; however, somemortgages in the pool typically are not included in the price for thetotal mortgage pool and are held in reserve to address any repurchaserequests or losses for the mortgages in the pool that were sold. If themortgages in the pool reach a certain age, then the aggregating entityreceives value for the mortgages held in reserve.

Since the mortgages are aggregated from a variety of lenders, it isdifficult for an investor(s) to determine the overall risk of the poolor even predict with any certainty as to which mortgages will be subjectto a repurchase request without performing costly due diligence. If theaggregating entity is able to participate in the insurance program, thenthe insurance coverage can be used as a substitute for all or some ofthe mortgages that would be used to provide the reserve. This leads toan increased profit for the aggregating entity and also a higher ratingfor the mortgage pool due to the lower risk for the investor. The higherrating will lead to a higher price for the mortgage pool.

FIG. 9 illustrates the application process for obtaining representationand warranty insurance policy coverage for a mortgage pool by anaggregating entity. The insurance entity begins the process by receivingan insurance application from the aggregating entity for coverage of apool of mortgages, S905. Although based on this disclosure, it will beappreciated that this step may be preceded by a request for an insuranceapplication from the aggregating entity and sending the insuranceapplication to the requesting aggregating entity. The insuranceapplication preferably includes information regarding the aggregatingentity similar to what would be obtained from a lender in the exemplarymethod shown in FIG. 1 and discussed above. The insurance applicationalso preferably includes information regarding the individual mortgagesin the pool, the lenders who originated the mortgages, and any otherinformation that would be of assistance in performing due diligence onthe mortgage pool. Identification of the lenders allows the insuranceentity to check its own records for additional information on the lenderincluding any prior risk assessment or risk classification. Examples ofadditional information include whether any of the mortgages are coveredby insurance already and the percentage breakdown between the lenders interms of the number of mortgages and dollar value of the mortgages. Ifthere are mortgages in the mortgage pool already covered by insurancefrom the insurance program, then, for example, the pricing may bereduced to take into account the previously paid for coverage. Theinsurance entity's database(s) preferably are used to augment theinformation received from the aggregating entity.

After receiving the insurance application, a risk assessment isperformed, S910, similar to the risk assessment described above for alender including requesting any clarification and/or additionalinformation. The risk assessment preferably takes a look at theindividual lenders in terms of the historical track record, theexperience level, and the level of controls for the types of mortgagessold by that lender into the mortgage pool. A review of prior lenderrisk assessments is done to determine whether one exists, and if oneexists updating it. A risk assessment also is made of the aggregatingentity, preferably including the historical track, the experience level,and the level of controls used. Depending upon the risk assessment, adetermination is made whether the mortgage pool is insurable, S915. Ifthe mortgage pool is not insurable, then the aggregating entity isinformed of the denial of coverage, S920.

If the mortgage pool is insurable, then a determination of a riskclassification is made based on the risk assessment, S925. The factorsused in the risk classification for an individual lender apply to amortgage pool. The risk classification will dictate the premium orpricing to charge the aggregating entity for the mortgage pool, S930. Aninsurance agreement is offered to the aggregating entity that includesthe premium that will be charged and the conditions on which theinsurance agreement is offered, S935. If the aggregating entity acceptsthe insurance agreement, then receiving the executed insurance agreementand the premium for the insurance coverage from the aggregating entity,S940. Then typically, an insurance policy is issued to the aggregatingentity, S945. If there is a repurchase request made on one of themortgages in the mortgage pool, then handling the repurchase request,S950, for example, as described above in connection with FIG. 3.

As will be appreciated by one of ordinary skill in the art, the presentinvention may be embodied as a computer implemented method, a programmedcomputer, a data processing system, a signal, and/or computer program.Accordingly, the present invention may take the form of an entirelyhardware embodiment, an entirely software embodiment or an embodimentcombining software and hardware aspects. Furthermore, the presentinvention may take the form of a computer program on a computer-usablestorage medium having computer-usable program code embodied in themedium. Any suitable computer readable medium may be utilized includinghard disks, CD-ROMs, optical storage devices, or other storage devices.

Computer program code for carrying out operations of the presentinvention may be written in a variety of languages. However, consistentwith the invention, the computer program code for carrying outoperations of the present invention may also be written in otherconventional procedural programming languages.

The program code may execute entirely on a mobile computing device, as astand-alone software package, or it may execute partly on a system userscomputing device and partly on a remote computer. In the latterscenario, the remote computer may be connected directly to the systemuser's computing device via a LAN or a WAN (Intranet), or the connectionmay be made indirectly through an external computer (for example,through the Internet, a secure network, a sneaker net, or somecombination of these). System users include, for example, individualsparticipating in the performance of the method and third parties likeinformation customers such as lenders, investors, and insurance carriersand/or their agents that are using the system.

The present invention as described above with reference to flowchartillustrations of methods, apparatus (systems) and computer programs inaccordance with several embodiments of the invention. It will beunderstood that each block of the flowchart illustrations, andcombinations of blocks in the flowchart illustrations and blockdiagrams, can be implemented by computer program instructions. Thesecomputer program instructions may be provided to a processor of ageneral purpose computer, special purpose computer, or otherprogrammable data processing apparatus to produce a machine, such thatthe instructions, which execute via the processor of the computer orother programmable data processing apparatus, create means forimplementing the functions specified in the flowchart block or blocks.

These computer program instructions may also be stored in acomputer-readable memory that can direct a computer or otherprogrammable data processing apparatus to function in a particularmanner, such that the instructions stored in the computer-readablememory produce an article of manufacture including instruction means orprogram code that implements the function specified in the flowchartblock or blocks.

The computer program instructions may also be loaded, e.g., transmittedvia a carrier wave, to a computer or other programmable data processingapparatus to cause a series of operational steps to be performed on thecomputer or other programmable apparatus to produce a computerimplemented process such that the instructions which execute on thecomputer or other programmable apparatus provide steps for implementingthe functions specified in the flowchart block or blocks.

Various templates and the database(s) according to the present inventionmay be stored locally on a provider's stand-alone computer terminal (ormobile computing device), such as a desktop computer, laptop computer,palmtop computer, or personal digital assistant (PDA) or the like.Exemplary stand-alone computers may include, but are not limited to,Apple®, Sun Microsystems®, Linux-compatible computers, orWindows®-compatible computers. Accordingly, the present invention may becarried out via a single computer system, such as a desktop computer orlaptop computer.

According to at least one exemplary embodiment, the database(s) may becentrally stored within one or more computers accessible to multiplesystem users. Accordingly, system users may access the database(s)through a private or public computer network in a conventional mannervia wired or wireless communications. By maintaining the database(s) ina central location, updates can be easily made to the database by asystem administrator without having to access all of the machines in thenetwork.

As is known to those with skill in this art, network environments mayinclude public networks, such as the Internet, and private networksoften referred to as “Intranets” and “Extranets.” The term “Internet”shall incorporate the terms “Intranet” and “Extranet” and any referencesto accessing the Internet shall be understood to mean accessing anIntranet and/or an Extranet, as well unless otherwise noted. The term“computer network” shall incorporate publicly accessible computernetworks and private computer networks.

The exemplary and alternative embodiments described above may becombined in a variety of ways with each other. Furthermore, the stepsand number of the various steps illustrated in the Figures may beadjusted from that shown.

The present invention as described more fully above with reference tothe accompanying drawings, in which preferred and exemplary embodimentsof the invention are shown. This invention may, however, be embodied inmany different forms and should not be construed as limited to theembodiments set forth herein; rather, these embodiments are provided sothat this disclosure will be thorough and complete, and will fullyconvey the scope of the invention to those skilled in the art. Theaccompanying drawings show exemplary embodiments of the invention.

Those skilled in the art will appreciate that various adaptations andmodifications of the exemplary and alternative embodiments describedabove can be configured without departing from the scope and spirit ofthe invention. Therefore, it is to be understood that, within the scopeof the appended claims, the invention may be practiced other than asspecifically described herein.

1. A method for processing a coverage request to an insurance entity made by an insured under a representation and warranty insurance policy, the method comprising: receiving the coverage request resulting from a discovery of a financial misrepresentation of information in a loan file putting the insured at a financial risk of a loss, beginning a mitigation process for the coverage request, reviewing the coverage request to determine if controls as required in the insurance policy were utilized by the insured in processing the loan, determining whether the insurance policy covers the coverage request, and when coverage exists for the coverage request based on the review, performing the following: continuing the mitigation process of the coverage request, and paying a proof of loss relating to the coverage request up to coverage limits of the insurance policy if presented.
 2. The method according to claim 1, further comprising: assisting the insured to further refine controls to avoid and/or prevent a similar financial loss, analyzing for trends based on the coverage request and similar coverage requests submitted previously, and when a trend exists, performing at least one of the following providing notification to insureds covered by the insurance policy, and offering suggestions on how to improve controls and/or loan practices to counteract and/or take advantage of trends.
 3. The method according to claim 1, further comprising adjusting a premium modifier for the insured based on the coverage request review.
 4. The method according to claim 1, further comprising: identifying at least one insured for additional training based on at least one of the following: coverage request history trends, types of issues raised during review of loan files of the insured, and a recommendation of an adjustor that the insured needs training.
 5. The method according to claim 1, further comprising when the coverage request review finds insured collusion, denying coverage for the coverage request.
 6. The method according to claim 5, when there is no insured collusion, making a demand against the bond and/or the insurance of at least one participant in the misrepresentation.
 7. The method according to claim 1, further comprising notifying an insurance carrier of the coverage request so that appropriate reserves can be set.
 8. The method according to claim 1, further comprising attempting to recover the amount of the proof of loss through subrogation.
 9. The method according to claim 1, wherein reviewing the coverage request includes analyzing the coverage request and at least one loan file associated with the coverage request.
 10. The method according to claim 1, further comprising issuing a reservation of rights to the insured for the coverage request.
 11. The method according to claim 1, wherein the mitigation process includes investigating whether an entity that originated the loan is capable of assisting in refinancing the loan, investigating whether any entity that participated in originating, obtaining or closing the loan is culpable and capable of covering any financial loss associated with the coverage request, and investigating whether the financial loss can be minimized by selling the loan to another entity at a discount below the loan value.
 12. The method according to claim 1, wherein the mitigation process includes investigating whether an entity that originated the loan is capable of assisting in refinancing the loan, investigating whether any entity that participated in originating, obtaining or closing the loan is culpable and capable of covering any financial loss associated with the coverage request, investigating whether any entity that participated in closing the loan failed to follow instructions, investigating foreclosure of the property subject to the loan, and investigating whether the financial loss can be minimized by selling the loan to another entity at a discount below the loan value.
 13. The method according to claim 1, wherein determining coverage includes satisfaction of conditions of the insurance policy including the insured using an ineligible list, and using controls as required in the insurance policy during processing of the loan.
 14. A method for processing a coverage request to an insurance entity made by an insured under a representation and warranty insurance policy, the method comprising: receiving the coverage request resulting from a discovery of a financial misrepresentation of information in a loan file putting the insured at a financial risk of a loss; beginning a mitigation process for the coverage request, the mitigation process includes investigating whether an entity that originated the loan is capable of assisting in refinancing the loan, investigating whether any entity that participated in originating, obtaining or closing the loan is culpable and capable of covering any financial loss associated with the coverage request, investigating whether any entity that participated in closing the loan failed to follow instructions, investigating foreclosure of the property subject to the loan, and investigating whether the financial loss can be minimized by selling the loan to another entity at a discount below the loan value; reviewing the coverage request to determine if controls as required in the insurance policy were utilized by the insured in processing the loan; determining whether the insurance policy covers the coverage request including when the insured participated in the misrepresentation, finding no coverage, when a source of the misrepresentation is excluded from coverage, finding no coverage, and when controls of insured were not utilized properly by the insured, finding no coverage; when coverage exists for the coverage request based on the review, performing the following: continuing the mitigation process of the coverage request, and paying a proof of loss relating to the coverage request up to coverage limits of the insurance policy if presented, and when the proof of loss is presented, begin subrogation using the mitigation process; when the coverage request is denied, allowing the insured to continue mitigation at the insured's expense; and when an entity is culpable, adding the entity to an ineligible list.
 15. The method according to claim 14, further comprising: assisting the insured to further refine controls to avoid and/or prevent a similar financial loss, analyzing for trends based on the coverage request and similar coverage requests submitted previously, and when a trend exists, performing at least one of the following providing notification to insureds covered by the insurance policy, and offering suggestions on how to improve controls and/or loan practices to counteract and/or take advantage of trends.
 16. The method according to claim 14, further comprising adjusting a premium modifier for the insured based on the coverage request review.
 17. The method according to claim 14, further comprising: identifying at least one insured for additional training based on at least one of the following: coverage request history trends, types of issues raised during review of loan files of the insured, and a recommendation of an adjustor that the insured needs training.
 18. The method according to claim 14, further comprising notifying an insurance carrier of the coverage request so that appropriate reserves can be set.
 19. The method according to claim 14, wherein the mitigation process further includes obtaining a market valuation of the value of the property subject to the loan.
 20. A method for processing a coverage request to an insurance entity made by an insured under a representation and warranty insurance policy, the method comprising: receiving the coverage request resulting from a discovery of a financial misrepresentation of information in a loan file putting the insured at a financial risk of a loss, determining whether the insurance policy covers the coverage request including determining whether the loan file is covered by the insurance policy and whether the controls required in the insurance policy were utilized by the insured in processing the loan, when coverage exists for the coverage request, performing the following: beginning the mitigation process of the coverage request, and paying a proof of loss relating to the coverage request up to coverage limits of the insurance policy if presented, and when coverage does not exist, informing the insured of the determination and offering the insured the use of mitigation resources at the insured's expense. 